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David Baker www.davidbakeronline.com BMW: Nasty business, lovely motors When BMW got rid of Rover earlier this year, it was like England versus Germany without the penalty shoot-out. The tabloids screamed ‘scum’, Tony Blair went nuts and the British people united against the evil foreign invader. It was almost enough to make you forget how good their cars are… Arena 100, July 2000 In June last year BMW ran an advert on German television for its new 3-Series coupé. The ad occupied an inch-high strip at the top of the screen for the entire commercial break. For six minutes, other commercials found themselves squeezed into the remaining space while an example of Germany’s finest engineering cruised along a blissfully empty road. It was a one-off (convincing other advertisers to give up 20 per cent of the picture was a mammoth task in itself) but it made the point. BMW doesn’t have to worry about what other brands are up to. Nor do the people who drive its cars. BMW just is. Even by motor industry standards, BMW spends a huge amount on marketing, and the effect has been to create one of the strongest brands in the world. Although few people can describe the BMW logo without seeing it, everyone knows that BMW stands for great engineering and superb design. But in the mid Nineties, talk of overproduction throughout the motoring industry meant that smaller players were in danger of being snapped up by the bigger groups or simply driven out of business (BMW was at number 13 in terms of car production). There were predictions that by the end of the decade the world would only have six car manufacturers – two in Europe, two in the US and two in Japan. For the Quandt family, which by now owned almost half the company, BMW’s independence was everything. Speaking last year, chairman Joachim Milberg summed up the challenge the company faced. ‘BMW was always seen as a particularly attractive target,’ he said, ‘on account of its success. But it has been, and remains, our clear-cut strategy to ensure the company’s long-term independence and autonomy.’ The Quandt family spokesman Thomas Gauly put it more succinctly: ‘BMW is not for sale.’ But even with half its stock in the hands of one family, no public company is entirely safe from takeover and BMW needed some extra padding both to give it economy of scale and make it too expensive to take on. It needed a company that was doing badly, had potential and was cheap. Looking out from the twenty-first floor of BMW’s space-age Munich headquarters, it found what it was searching for 800 miles to the west. Rover had suffered from decades of underinvestment, sloppy management and some of the worst labour relations seen in the West. So in 1988 when the last vestiges of British Leyland were dismantled and Rover sold to British Aerospace, the ailing company came with an additional £250m of taxpayers’ money provided to get it back on its feet again. But the brand still failed to impress and, once Rover cars were driving around with Honda engines, the idea of it as a truly British marque was starting to wear thin. From BMW’s point of view, Rover – owner of the Land Rover, MG and Mini brands – was the perfect acquisition to immunise them against takeover. The Quandts agreed and, on March 17, 1994, a deal was struck to buy 80 per cent of the company from British Aerospace for £800m. What happened next, and how BMW ended up six years later with a $5bn loss, is unclear. BMW’s board minutes are famously concise and insiders mutter about the rewriting of history after the fact. But what is certain is that the company was suffering from a serious clash of personalities at the top, and Rover would become its final battleground. Bernd Pischetsrieder was elected chairman of BMW in 1993. The story goes that he almost didn’t get the job because of his goatee beard. In fact, in a company that can sometimes be Disney-like for its insistence on ‘the corporate look’ (clean-cut or mad scientist for men, tall and blonde for women), Pischetsrieder looked more like he thought the whole thing was a big joke. But Pischetsrieder had worked wonders, in particular overseeing the establishment of a huge BMW factory in South Carolina that would produce BMW’s success story of the Nineties, the nippy, desirable Z3 roadster. His number two, Wolfgang Reitzle was a hard-nosed, uncompromising businessman. Although he has never commented on the matter publicly, most people in BMW assume Reitzle had his eye on the top job. Whatever the truth, the power struggle between these two men was to cost BMW dearly when it came to Rover. Pischetsrieder’s strategy was to earmark £500m a year to bring Rover back to its former glory. The British management would be given free rein to bring about improvements while BMW expertise and technology (as well as cash) would help turn the brand around. In the short term, the company would launch the Rover 25 and Rover 45 as replacements for the 200 and 400, with the Rover 75 coming in at the top end of the market. Reitzle says now that he argued from the start for the Rover brand to be killed off entirely and for the company to focus on the more profitable Land Rover, Mini and MG marques. Six years on, some BMW insiders suggest that he may be rewriting history to make himself look better. But in the end, the Quandts supported Pischetsrieder and the operation to revive the Rover brand began. Things started well. The workforce was cut with relatively little pain, stock levels were reduced, freeing up money for other projects, and the company’s Cowley, Swindon and Solihull sites got makeovers. But the Rover 75, designed to restore Rover as a premium brand, bombed in Britain (the first production models were so substandard that German engineers had to be flown over to put them right) and sales of the Rover 25 and 45 got caught up against competition from the revamped Volkswagen Golf, GM’s Astra and the immensely popular Ford Focus. For what was a remarkably long time, the men in Munich held their distance and kept the cash flowing. But by the beginning of 1999, Rover was eating up more than £2m of BMW money every day and in five years had failed to produce a single marketable car. At 7 o’clock on the morning of February 5, the BMW supervisory board met to consider one agenda item: what to do about ‘the English patient’ (the name everyone outside of Rover was using to describe the ailing company). The Quandts, who had given Pischetsrieder a relatively free rein until then, entrusted Eberhard von Keunheim, a former chief executive and now chairman of the supervisory board, with the job of getting results. By mid morning, Pischetsrieder knew he was dead in the water and handed in his resignation. Reitzle was briefly put forward as his successor, but, realising he had no support among the workers’ representatives that sit on the board of every German company, he too threw in the towel. In one day, BMW had suddenly lost two of its most able executives. In Munich, if you can’t actually eavesdrop at a BMW board meeting, the next best thing is to read the Suddeutsche Zeitung. The Bavarian paper’s scoops are so accurate it’s almost as if the newsteam has a secret tunnel straight into the BMW HQ. On the evening of Monday March 13, news leaked out that the Suddeutsche Zeitung was about to run a story that BMW was recommending the sale of Rover and that the buyer was ‘not one of the established auto groups’. There was to be a meeting of the BMW supervisory board on the Thursday and BMW made little effort to deny the leak. It would later emerge that negotiations to sell Rover had begun six months before. Back in London, officials at the Department of Trade and Industry were frantically phoning their contacts to see if the story had any truth. Trade Secretary Stephen Byers put in a call to Joachim Milberg, the mild-mannered academic who had taken Pischetsrieder’s job as company chairman. Over the course of this conversation, Byers learnt for the first time how advanced the deal to sell Rover actually was. ‘The mood turned very grim,’ said one DTI official later. But even then BMW would not disclose the identity of Rover’s buyer. By Thursday, the name Alchemy was being bandied about the bierkellers of Munich. In London the issue dominated the weekly cabinet meeting and Tony Blair put in a phone call to Milberg in which, to use the muted language of international diplomacy, he expressed ‘a great deal of disappointment and anger’. Workers at Longbridge were more laconic. A BMW sign at the factory gates had ‘Stabbed in the back’ sprayed over it. Another, at a nearby car dealership, simply said, ‘Scum’. Everyone blamed the Germans. The following day Joachim Milberg appeared at a press conference in Munich to explain the sale. He was pale and edgy and looked like he’d had very little sleep. Bombarded by highly emotional questions from British reporters, he blamed the British government, the strong pound, Brussels, and what he called the ‘weakness’ of the Rover brand in the UK. On May 9, after the end of negotiations with the roundly hated Alchemy group, BMW finally unloaded Rover on to a two-month-old alliance of West Midlands businessmen going by the entirely apt name of Phoenix. The cost? A ‘symbolic’ tenner. Why BMW failed to turn Rover round will be the subject of countless business case-studies. But the truth is that Rover was always going to be a damaged brand and this may be something BMW haven’t fully grasped to this day. At a recent industry dinner in Spain, BMW executives expressed astonishment that Brits were not more ‘loyal’ to Rover. A big problem seems to be that from the comfort of Munich, Rover’s Viking ship logo is bathed in the rosy glow of industry nostalgia. But for the Brits it meant stuffy tanks cluttering up the golf club car park or, even worse, British Leyland – with all the horror those two words can generate. This year BMW posted profits of approximately £400m for 1999, offset by roughly £1,900m costs for the disposal of Rover, leaving a deficit of about £1,500m. There’s no doubt that the company is in good shape, although, to add to their woes, in 1999 BMW lost the lead among German luxury car makers in the lucrative US market to Mercedes, and in Europe its market share has dropped from 3.4 per cent in 1996 to 3.1 per cent. And it is again vulnerable to takeover, or at least a merger. Putting Rover behind it, BMW is pinning its hopes on the X5, a high-end, high-spec four-wheel-drive sports utility vehicle, on (yet) another incarnation of the 3-Series convertible, and on a strange scooter-with-a-roof. And if you need further proof that the Munich market research team still don’t understand Britain very well, then look no further than the name of BMW’s weird new offspring – the C1

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